Fast-food workers face problem: Who’ll fund pay raises?

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Many workers make the federal minimum wage. At $7.25 an hour, that’s about $15,000 a year, assuming a 40-hour workweek. It’s less than half the median salary of a US worker.

By Candice Choi and Jonathan FaheyAssociated Press
September 02, 2013

NEW YORK — US fast-food workers often earn about $7.25 an hour to make the $3 chicken sandwiches and 99-cent tacos that generate billions of dollars in profit each year for McDonald’s and other chains.

Thousands of the nation’s many millions of fast-food workers and their supporters have been staging protests across the country in the past year to call attention to the struggles of living on or close to the federal minimum wage. The push raises the question of whether the economics of the fast-food industry allow room for a boost in workers’ pay.

The industry is built on a business model that keeps costs — including those for labor — low so companies can make money while satisfying America’s love of cheap, fast food. And no group along the food chain, from customers to companies, wants to foot the bill for higher wages.

Customers want a deal when they order burgers and fries. But those cheap eats squeeze franchise owners, who say they survive on slim margins. And corporations increase profits to keep shareholders happy.

‘‘There’s no room in the fast-food business model for substantially higher pay levels without raising prices for food,’’ said Richard Adams, a former McDonald’s franchisee who runs a fast-food consulting business.

Caught in that triangle are the workers.

The median hourly wage for a fast-food cook last year was $9, up from about $7 a decade ago, according to the Bureau of Labor Statistics. But many workers make the federal minimum wage, which was last raised in 2009. At $7.25 an hour, that’s about $15,000 a year, assuming a 40-hour workweek. It’s less than half the median salary of an American worker. Massachusetts’ minimum wage is $8 per hour.

The protests come as President Obama has called for an increase in the federal minimum wage to $9 an hour. And the fast-food workers’ movement is getting financial support as well as training from organizers of the Service Employees International Union, which represents more than 2 million workers.

Workers protesting in cities like New York, Chicago, and Detroit are pushing for $15 an hour, or $31,000 a year. But the figure is seen as more of a rallying point; many say they’d be happy with a few bucks more.

‘‘Anything to make it more reasonable,’’ said Jamal Harris, 21, who earns $7.40 an hour working at three fast-food restaurants around Detroit — a Burger King, a Long John Silver’s and a Checkers — because he’s never sure how many hours he’ll get at any one job.

The same is true for Robert Wilson, a 25-year-old McDonald’s employee in Chicago. ‘‘It was never a consistent check,’’ said Wilson.

Wilson said he got one 10-cent raise in the past four years. That brings his pay to $8.60 an hour after seven years of working at the restaurant.

Low wages and a lack of benefits aren’t new in the fast-food industry. It’s why ‘‘McJob’’ has been a pejorative term for so long.

What’s changing is that such jobs are playing a bigger role in the economy, bringing the protests closer to home for many. Nearly 70 percent of jobs added since the recession have been in low-paying industries such as fast-food and retail.

Yet half the jobs lost during the Great Recession were in industries that paid between $38,000 and $68,000 a year.

Currently, the median for all US full-time wage and salary workers is $40,350, according to the Bureau of Labor Statistics. That’s based on weekly earnings of $776.

The tilt toward low-wage jobs is what makes it so critical for fast-food and retail jobs to provide better pay, said Robert Reich, an advocate for workers who served as labor secretary in the Clinton administration.

‘‘It’s impossible for the economy to run on all four cylinders unless consumers have enough purchasing power to keep the economy going,’’ he said.

Still, raising wages for fast-food jobs means figuring out where the money would come from.

Franchisees say their profit margins are thin — they make 4 to 6 cents, on average, for every dollar they take in — and that they can’t afford to increase pay, particularly when companies are trumpeting value menus amid tougher competition.

Kathryn Slater-Carter, who owns two McDonald’s in California, said what franchisees can pay depends ‘‘on what money you’ve got left after all [the company’s] interference.’’

Slater-Carter said that in addition to emphasizing low prices, the company has been putting more costs onto franchisees for things such as software licenses and service contracts for restaurant equipment.

Aslam Khan, chief executive of Falcon Holdings, which owns 165 Church’s Chicken and 44 Long John Silver’s locations, said his employees start at $8 to $8.50 an hour. To keep the best workers, he pays $10 to $13 per hour. He recognizes that’s still not much.

‘‘These days the whole family has to work to support the family. In order to put bread on the table, you have to do whatever,’’ he said.

Over the past three years, Khan said, his profit margins have declined from 5 percent to 1 percent as food and other costs have climbed and menu prices have remained flat.

Many labor groups point to the profits of the companies — and the pay packages of CEOs — when trying to assign blame for low wages.

Last year, the five big publicly traded fast-food companies together earned 16 cents in profit for every dollar of revenue. That was 73 percent better than at the average big US company, according to FactSet, a research firm.

Still, publicly traded companies feel pressure from shareholders and creditors to maintain or improve profits; even a slight change from quarter to quarter can send stock prices moving in either direction.

In e-mails, McDonald’s and Burger King said they don’t determine wages for workers, noting that the vast majority of restaurants are run by franchisees.

Representatives of Wendy’s and Yum Brands Inc., which owns KFC, Taco Bell, and Pizza Hut, did not respond to requests for comment.

Labor organizers dismiss the idea that companies can’t influence pay. They say companies have near total control of every other aspect of operations through their strict franchise agreements, down to which napkins and computer systems are used, as well as the prices that are charged for the food.

‘‘Corporations try to insulate themselves legally and morally by dictating everything but working conditions,’’ said Stephen Lerner, a longtime union organizer.

If franchisees and companies can’t or won’t pay more, that leaves the people who buy fast food.

‘‘This all comes back to the consumer,’’ said Adams, the former McDonald’s franchisee turned consultant.

Although many Americans say they support higher wages for workers, the reality is that people flock to the cheapest meals. If prices went up noticeably at McDonald’s, for example, 23-year-old Eugene Santos said he would probably find someplace else to eat.

And the weak job market tilts the power in favor of employers, who can easily find replacements who are willing to work for low pay.

Organizing workers has been notoriously difficult in the fast-food industry, given the high turnover rates and ranks of younger workers who see the jobs as temporary gigs.

Garrett Mattson, 24, from Warren, R.I., started working at McDonald’s when he was in college and stayed because he couldn’t find another job. He earns $7.75 an hour.

He said he would probably support the effort to raise pay if it came to the restaurant where he works. But even though the job is important, he doesn’t consider it a career path.